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Cisco Data Center Play Gains Steam with VMware Stake

Updated: Cisco's data center initiative and $150 million investment in VMware are signs that the company intends to be more than just the networking plumber.

Cisco Systems, after planting its strategy flag in the fertile data center soil earlier this week, wasted no time in advancing that strategy by announcing on July 27 that it has taken a $150 million stake in VMware.

With its new 1.6 percent ownership of VMware, Cisco hopes to gain new ground in the data center by drawing VMware closer to itself to help customers better coordinate and integrate virtualized resources with the network.

The news comes on the heels of the launch of Ciscos new vFrame appliance, designed to help users quickly and easily provision virtualized storage, compute and network resources to support new applications or business services. VMware is the first virtual machine engine vFrame supports.

Cisco, whose investment in VMware follows a similar move by Intel earlier this month, hopes to put an executive on VMwares board of directors, although VMware only agreed to consider that at a future date.

Cisco would not give detail on its specific plans, although a spokesperson said that "we are making this investment with the strategic intent and with the interest to stay close to key market transitions impacting the data center."

Industry watchers said the move is not surprising, given Ciscos interest in expanding its presence in the data center beyond supplying networking gear.

"Cisco is saying they want to be a serious contender in the data center and they want to align with one of the fastest growing companies in the data center," said Cindy Borovick, program director for data center networks at IDC in Framingham, Mass. In order to succeed there, Cisco "needs to make some pretty big acquisitions. Where can they get the biggest bang for the buck? By having as close a relationship with VMware as possible," she added.

One pain point for customers that Cisco is likely to address in collaboration with VMware is security. As customers exploit VMwares Vmotion capability, which allows users to move virtual machines from one physical host to another, the need for security becomes paramount—especially when those physical hosts are geographically separated.

"To do that, customers need to build very flat networks," said John Humphreys, vice president of virtualization research at IDC. "One customer we know of has 2,000 virtual machines all being hosted on one Layer 2 network that crosses geographical boundaries. From a security perspective, thats an absolute nightmare.

Humphreys added that if youre going to move virtual machines, you have to make the network more aware and intelligent. "Cisco recognizes that its a pain point for customers and its a technical hurdle that needs to get solved. It will require a lot of collaboration between the networking folks and virtualization vendors," he said.

Ciscos new vFrame provisioning appliance addresses another big pain point for data center customers: the lack of effective management tools for virtualization.

"There is a major gap in managing virtual environments. Even those with tools arent focusing on how to manage the virtual world," said Evan Jafa, chief technology officer at First American Corp. in Santa Ana, Calif. "Were looking for anybody whos looking at this issue much more creatively than anyone else has to date," added Jafa, who is interested in Ciscos vFrame.

Humphreys sees potential integration work between the new vFrame provisioning appliance and VMwares Vmotion. "There is the concept of the data center being the system, and apps or services migrate around [it] to increase or decrease capacity in an on-demand way. The enabling technology for that is virtualization, but there is also the need for network reconfiguration, network migration, security policy migration and a whole host of things," he said.

The VMware stake could accentuate the growing competitive threat Cisco is mounting against non-traditional competitors such as IBM, HP, Microsoft and others as Cisco seeks to find new growth areas adjacent to its traditional networking base.

"IBM, HP, Microsoft and other giants think about their major accounts in terms of what percentage of the overall budget comes to me," said James Staten, principal analyst at Forrester Research in Foster City, Calif.

"Ciscos share of wallet has only been through the network administrator and network-related purchases. If they establish a strong foothold, they will start taking money out of the storage administrator or server administrator wallet. That is where the big battle exists. If they really want to grow beyond where they are now, they have to expand into other peoples territory."

But would such stepped up competition hurt customers? Staten doesnt think so. "When you have these battles, you get better solutions. [As a vendor] I cant stop making my stuff work with IBM, but I can present another alternative that will make myself and my competitor start innovating better," he said.

Not all observers agree that customers wont get caught in the crossfire. "In the past as an IT shop, I could compartmentalize my strategic partners. Now who owns virtualization – IBM or Cisco? Do I have to choose one partner over the other," queried Jim Metzler, president, Ashton, Metzler & Associates, a network technology consultant in Sanibel, Fla.

Longer term, the blurring boundaries could change the skills and expertise required of network administrators. "This is saying that the organization has to change to adopt these new technologies which arent traditional networking technologies. The CCIE training was not about virtualized storage or computing devices," he added.

Ciscos commitment to VMware and its drive to become a thought leader in the data center is clear, but whats not clear yet is the level of commitment VMware has to its new investor. And that commitment is crucial for Cisco.

"To be in tune with VMwares strategic direction, it will be critical for Cisco to have that level of commitment from VMware," said Rob Whiteley, industry analyst with Forrester Research.

Ciscos investment in VMware, most observers believe, is the tip of the iceberg for Cisco in its data center strategy. But its not clear what other acquisitions or investments Cisco is likely to make.

Editors Note: This story was updated to include additional comments from consultants and analysts.

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